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Justification of big adjustment on URAR form

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riskassessor

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I'm not an appraiser but a buyer and seller. I would be interested to know whether there are any guidelines, or accepted good practices, regarding justification of large adjustments on the URAR form. In the case I am thinking of, the appraiser has made a 15% ($175,000) adjustment in the Quality of Construction field without proper explanation. Should such a large adjustment be explained in detail and possibly broken down in terms of specific differences between the two properties? What are the guidelines and professional practices on this?
 

Terrel L. Shields

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Such an adjustment may well be justified but failure to explain how such an adjustment is derived is not justified. Yes, Fannie mae has guidelines and most appraisers attempt to avoid making adjustments that large but it is allowable but anything approaching a 10% or more adjustment should have some detail as to how you derived it.
Quality of construction in an isolated sale is impossible to adjust accurately. If you have a two sets of similar sold homes where you can say that although the same size there is a difference between the sets, you can make that argument. Personally, only in desperation would I use a dissimilar quality home and only then if market evidene was sufficient to justify it.
Unfortunately, although i haven't seen your report, and therefore may be jumping to conclusions...my first thought is that the adjustment is based upon the max (15%) fannie recommends not to exceed and was pulled out of the air to 'make it fit.' It just seems too handy.
 

riskassessor

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Thanks, Terrel. The overall net adjustment was -15% and the gross adjustment was 26% so more or less in accordance with the Fannie Mae guidelines (15%/25%). My concern is that all the little adjustments basically cancelled out and then this one largely unexplained adjustment knocked 15% off. It looked to me as if the appraiser might be trying to justify a preconceived result. I agree with you that it should be explained how the adjustment is derived. But is there a specific guideline that says that the derivation should be given?
 

Terrel L. Shields

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In a private appraisal or summary / restricted format I would say that he could escape by claiming it wasn't required to be reported....

For fannie mae, they do require all adjustments to be justified and explained although not necessarily in great detail. They should at least say if they used paired sales to estimate that, depreciated cost new, or inquired at the Coffee club from the cornseed prophets what their oracle was. In commercial, etc. appraisals where an obvious defect was unique I have simply stated that in my opinion the condition should be adjusted for but there is little current data to demonstrate it, however, IMHO it needs to be made therefore I made an adjustment based upon my experience in the marketplace. That is a valid, even legal, argument but it weakens the value of the opinion. Partial interest deductions are another instance where similar circumstance is affected by other conditions such as the animosity between parties, the preceived mental state of the parties, and the actual number of parties involved (i.e.- an undivided timber tract will have a smaller discount with 3 owners than it will with 14..)
 

TJSum

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The individual adjustments guideline is 10%, but these are just guidelines, they can be exceeded with proper documentation and explaination. Do you live in an area with very limited activity, it could be the sales used were the only ones within reason available. If you live in an area with plenty of data, then it raises some concerns. Hopefully some of the Texas appraisers will see this and offer some help.
 

riskassessor

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Thanks TJSum. Is there a publication that mentions the individual adjustments guideline of 10% or is that just industry practice?
 

hastalavista

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Certified General Appraiser
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California
I'm not an appraiser but a buyer and seller. I would be interested to know whether there are any guidelines, or accepted good practices, regarding justification of large adjustments on the URAR form. In the case I am thinking of, the appraiser has made a 15% ($175,000) adjustment in the Quality of Construction field without proper explanation. Should such a large adjustment be explained in detail and possibly broken down in terms of specific differences between the two properties? What are the guidelines and professional practices on this?

What is your connection to the appraisal?
I ask this with reason; a report needs to be written in a manner that communicates meaningfully to the intended user so that the report's rationale is understood.
So if you are an intended user and you do not understand the report, that is a problem (restricted or not).
If you are not an intended user, then the question becomes do the intended users understand the rationale (why the adjustment is as large as it is and if it is justified or not?).

This is a distinction with a difference.
 

riskassessor

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Denis, that's a good question. I don't want to say too much on a public board but I can say that I am not the client for the report but I am adversely affected financially by the large, unexplained, negative adjustment. The other party would have no interest in questioning the adjustment and indeed would be very happy with it.
 

joe huffman

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Missouri
Where is the 10 per cent adjustment written... as being a guideline...not in Fannies guidlines
 

Marcia Langley

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Missouri
risk,

I agree with the others in general that a single adjustment of 15% on quality of construction should be explained.

Since you are not the intended user I can only assume that you are correct when you say it was not explained.

However, that lack of explanation may or may not affect the reconciled opinion of value. The report would have to be evaluated as a whole in order to form an opinion about that.

That would be an appraisal review assignment to be performed by a qualified appraiser.
 
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